|A compilation of this board's financial/economic posts From 40813 to 40883
Post 40813 by wilful10 Reply
Briguy - Do you have any reliable source for
the amount of liquid assets the Saudis have in the U.S.? This figure seems to be one of those types of numbers that increases with the telling. At the present rate - it should hit a trillion by month end.
I do recall Tampa posting something that appeared authentic that, if I recall correctly - indicated bonds in the neighborhood of 50 bil.
PS I don't consider real estate a liquid asset.
Post 40814 by lkorrow Reply
Can someone provide an English language translation of how this works?
Post 40815 by lkorrow Reply
pmcw, knowing you're a telecom history buff, I thought you might enjoy this article that I came across on AT&T.
OT: Table ON TOPIC SUMMARY Aug
Post 40817 by maniati Reply
sr, pmcw: I guess I missed something. Who said there was a stock market bubble in 1968? Was that like one of those that Don Ho sings about? You know..."Tiny Bubbles?" :-) I got out my magnifying glass and still couldn't find it. Then I checked Kindleberger's (famous) book, called "Manias, Panics and Crashes." He listed over 40 manias, dating back to the tulips, and as recent as 1998, but the only mention of the 1960's had to do with currency speculation.
Post 40818 by Arkural Reply
Cnbc mention this a.m.: Felt 50 more pts to go on Soxx.
Post 40819 by clo Reply
RESEARCH ALERT-Salomon upgrades Microsoft to "outperform"
NEW YORK, Aug 22 (Reuters) - Salomon Smith Barney said on
Thursday it raised its rating on Microsoft Corp. to
"outperform" from "neutral" after a survey of technology buyers
suggested that the software giant will see a boost from
The investment bank said its poll of chief information
officers showed that they expect to spend more on Microsoft
products over the next six months.
Salomon also also raised its price target to $59 from $56.
nothing like sticking your neck out! clo
Microsoft shares rose to $53.40 in preopen trading from
Wednesday's closing price of $52.28.
Salomon said risk factors for Microsoft include the
challenging economic environment, weak personal computer unit
sales growth expectations, and the company's ongoing legal
((--Nicole Volpe, New York Newsdesk (646) 223-6000))
*** end of story ***
Post 40820 by pmcw Reply
maniati, Context is everything. Sr and I initiated a debate over a post where, if I remember correctly, he said that a deflationary depression has to follow this bubble just as it has every bubble in history. My position is that a deflationary depression does not have to follow this bubble and that there have been recent bubbles where it did not.
Sr, implied if not stated that the trio of experiments that (the creation of the central bank, leaving the gold standard and replacing the "credit system" with derivatives system) are likely to work against us today rather than save us from our "natural fate".
In follow on posts I tried to quantify and identify bubbles. Some are obvious yet some are not. In the quantification of bubbles I tried to make clear that the bubble of 2000 was extraordinarily narrow. If viewed by only the S&P 500 and judged by your handbook, it wouldn't even make the cut. Since the S&P 500 index represented 75% of the US stock market (measured by market capitalization) towards the end of 1998, I think it is the best true measure of the broad market short of the Wilshire 5000.
My representation, in my original post, of the above comparison was actually not the late 1960's even though the merger mania of that era is what fed the last excitement of the early 1970's. I made the following statement of qualification in my post on this topic:
"The bubble commonly thought of as being in the 1960's actually peaked in 1973 when the S&P500 hit just over 120. In 1974 the S&P hit a low of roughly 60. This was much more traumatic than what we've seen from the S&P500, the DOW or even the Wilshire 5000 since their peaks of 2000."
This was as much to illustrate that 2000 was not a broad market bubble as it was to illustrate that 1973 was.
The S&P500 took 37 months to double (from Feb97 until Mar00) and 28 months to collapse back to the starting level (Mar00 until July02). Total round trip was 5 years and 5 months. In the early 1970's, the S&P500 took only 31 months to double (from May 1970 until Jan1973) and then only 22 months to collapse back to the starting point (Jan1973 until Oct1974). Total round trip was 4 years and 5 months. This illustration clearly shows both the rise and fall of the broad market in the early 1970's was faster than it was in the late 1990's. Please also keep in mind that it paid a 5%'ish dividend during all these 53 months. The common thread for both markets (there were plenty of differences too) was inefficient investment of capital.
I think the point I should have made is that a collapsing market is not the sole reason for the economy that follows. There are many differences between today, 1932 and 1975 and all of these differences play a part. Certainly, we can learn from history and it is a very good guide to tell us what to watch. My primary concern today is that I don't see optimal proactive policy that will ease the pain of unwinding the inefficient investment of the second half of the 1990's. Either putting these assets to work (increasing the demand) or reducing the cost basis to where they are economically viable (or at least not a huge burden) is the step that must be taken before the economy can begin a meaningful and sustainable recovery.
OT: Corporate flow chart docum
Post 40822 by jcl22192 Reply
Saudi financial exit-not
http://quote.bloomberg.com/fgcgi.cgi?ptitle=Caroline%20Baum&touch=1&s1=baum&tp=a d_topright_bbco&T=markets_fgcgi_content99.ht&s2=ad_right1_bbco&bt=ad_bottom_bbco &s=APWO9aBTxVGhlIENh
Just the Facts
With Treasuries witnessing a huge five-month rally and stocks posting double-digit gains in the past month, one is left wondering about the veracity of those massive Saudi sales.
The hundreds of billions of dollars being bandied about seem ``wildly inflated'' to Jim Bianco, president of Bianco Research in Chicago, based on the U.S. Treasury's International Capital statistics. ``All OPEC nations held only $45.7 billion of U.S. Treasuries as of May 2002, the latest available data, which is not materially different from year-end 2001 ($46.8 billion) and year- end 2000 ($47.7 billion),'' Bianco says. ``So if the Saudis dumped $100 to $200 billion of assets, it cannot be solely in Treasuries.''
Going to the Treasury's statistics on bank liabilities to foreigners, Bianco again finds a dearth of evidence in support of a Saudi exodus.
``Again, total banking liabilities owed to foreigners by `Other Asia,' a category that includes Saudi Arabia as well as most Middle Eastern OPEC countries, was only $24.7 billion as of May 2002,'' Bianco says. ``This is not materially different from year-end 2001 ($25.8 billion) and year-end 2000 ($29.1 billion).
Trickle, No Tsunami
The Treasury also provides international capital statistics on equity holdings. ``Other Asia'' shows net sales of less than $1 billion of equities from September 2001 through May 2002. So far, the FT is batting 0 for 3.
``Never let the details get in the way of a good story,'' Bianco says.
If the Saudis are afraid their assets will be frozen, as Iranian assets were in the late 1970s and early 1980s, it makes sense to take their money out of the U.S., ``assuming most of it isn't in Switzerland already,'' Bianco says.
Those sales should leave some kind of a paper trail. While the Treasury's international statistics, released on the final business day of the month with a two-month lag, for June, July and August may yet support the FT's story, there is nothing through May to indicate any major disaffection with U.S. assets.
NOT the Time to Sell..
Post 40824 by Arkural Reply
Emc looking for 8.32, Hlit 3.44 eom
"Europeans are misreading
Post 40826 by jcl22192 Reply
Re:NLY short interest @ 2mm-that's a big divi to cover.
Take a look at AXM-pe of 3.90, pays ~ +15% and just announced 65% increase in net earnings.
Post 40827 by lkorrow Reply
Free research report on SNDK from Morgan Stanley (requires registration):
"Idealized S&P Wave Patte
Post 40829 by jeffbas Reply
maniati, my personal recollection is that 1968 was the peak in many stocks, especially tech stocks. I recall that is when Digital Equipment, the leading new age computer company of the time - since it was displacing mainframes with minicomputers - hit a peak never to be seen again.
OT: Well, I'm in Singapore and
Post 40831 by Arkural Reply
OCU-ABN Amro is in talks to hire EDS. NY times, pgc2 8/21/02
OT: OCU, While in Singapore, y
Post 40833 by spirare Reply
Gold could soothe pension fund fears
By Steven Swindells
LONDON (Reuters) - Gold has a pivotal role to
play in soothing the pension industry's painful
experience with slumping stock markets, an investment specialist at the
body promoting use of the precious metal has said.
Rob Weinberg, managing director of institutional investment at the
industry-backed World Gold Council WGC.L , sees gold as the way forward
for pension funds to protect their assets in uncertain times when even
returns on bonds are not enough.
"The diversification that managers
looked for from U.S. blue chips to
emerging markets to bonds is not
working anymore... Investors aren't getting the returns they
expected," Weinberg told Reuters in an interview.
Gold, which was largely ignored by the investment community over
the last 20 years as stock markets stormed ahead, is returning as an
alternative asset class in troubled times.
Its attraction lies in its tendency to go up when stock markets and
bonds fall and when the dollar slips up.
"Gold is a prime diversifier," Weinberg said.
The price of the yellow metal has surged as much as 20 percent this
year as investors sought a bolt hole amid tumbling equities, a fragile
dollar and the aftermath of the September 11 attacks on U.S.
Analysts polled by Reuters see gold climbing a further 18 percent
next year to an average $319.75 an ounce from a 15 percent
advance this year.
By adding gold to a portfolio, managers could reduce the risk status
of the entire fund or maintain the risk level of the fund while allowing
some higher risk assets -- including stocks -- to be placed in the
portfolio, Weinberg said.
The pensions industry, uncomfortable in dealing with an
over-the-counter product which has to be stored safely, has until
now largely steered clear of the gold market.
This reluctance has limited investment use of gold to hundreds of
tonnes of the metal and this needed to become thousands of tonnes
for pension funds to benefit from gold's advantages, Weinberg said.
But the times may now be changing for the industry and the metal.
PENSION INDUSTRY BLACK HOLES
Fears that the pensions industry may be facing "black holes" or
funding shortfalls, because of the sharp fall in stocks over the last few
months, has jangled the nerves of people holding pensions and
Investment bank Nomura has warned that investors were only just
beginning to wake up to the potential costs of underfunded pension
schemes across the entire corporate landscape.
Returns based on double digit equity growth year after year have
proved a mirage as the bottom fell out of the equities bull run.
Unease over the health of pension funds has been increased by the
problems with the scheme at failed energy giant Enron.
The largest U.S. pension funds, overseers of multibillion- dollar
public employee retirement funds, lost well over $1 billion on stock
and bond investments in WorldCom Inc.
The WGC is likely to emphasise gold's scope for pension schemes
especially in light of the appointment as its new head of James
Burton, previously CEO of the California Public Employees'
Retirement System, the biggest U.S pension fund.
The fund faces an unrealised loss of $565 million in its $150 billion
portfolio from WorldCom.
Ratings agency Standard & Poor's has already asked U.S. corporate
issuers with defined benefit pension plans to provide information on
the value of their defined pension plan assets and the asset mix in the
pension portfolio because of falling equity markets.
Europe from Britain to Switzerland is also suffering from the impact
on pension funds of the decline in stock markets. Ratings agencies
have cut their rating on life assurers who had heavy holding of stocks.
Now six investment banks have also created products that offer
investment bonds linked to gold.
Against this background, the WGC is playing up to the inherent
conservatism of gold as an investment asset.
"We're not suggesting gold will double overnight but it won't plummet
either," said Weinberg.
Interview With: S.E. Hayden
President and CEO
Click here if you don't hear audio...
Current Price of Gold
TIA. Pass It Along>>>>>>>>>>>
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
Post 40834 by oldCADuser Reply
Yes, I saw that. Not my Business Unit, but it appears to have helped the share price, so I'm all for it ;-).
Post 40835 by Arkural Reply
Abn/Eds cont'd-transcription snip=Abn in exclusive talks to hire Eds to manage computers at its wholesale bank...contract worth 1.5B, expect to run for 5yrs...talks to begin soon...Abn (wants to) cut costs, revive earnings..corp/investment bank posted 125m loss in Q2....etc.
Post 40836 by jeffbas Reply
spirare, I suspect this chart would give pension fund managers ulcers, not "soothe their fears".
OT: The problem is that I just
Post 40838 by Arkural Reply
lk-Sndk, in trading range 16-18, I'd wait for a break , confirm,long/short before entry.
OT: Enron Math 2002!
Post 40840 by Arkural Reply
error-"wait for a breakout." darn too busy. eom
Post 40841 by tinljhtkh Reply
CNBC stated last night that Saudi assets were around 800 billion and that total foreign holdings were somewhere in the neighborhood of 7-8 trillion dollars! How that is broken up, I do not know!
Post 40842 by Arkural Reply
pmcw-Why did Csco enter the storage mkt, as you see it. Please condense your reply if possible, thx.
OT: Times of London
OT: OCU, We stayed at the Orie
Post 40846 by pmcw Reply
ark, I think their initial focus will be in the connection of storage, but it might grow from there. Reasons:
The market is huge and will grow in step functions as video moves to IP.
The market is and will grow more to a software driven product which keeps the price tag to compete high.
It moves them towards a one stop shop. CSCO ain't done buying companies and might end up nearly as tightly connected to the Internet as MSFT is to the PC.
Post 40848 by jcl22192 Reply
Commentary - August 20, 2002
Yes. It's a housing bubble.
Debate rages today about whether or not a housing bubble exists in the U.S. The fact that there is even any controversy about the bubble's existence testifies to the power of the forces of misinformation and proves that the long habit of wishful thinking among the millions of victims of the so-called New Economy has yet to start to dissipate. But we're used to that. We recall the debate that we endured in the late 1990s on the existence of a bubble in stocks when iTulip.com first opened shop. In those days, nearly everyone was in on the game of justifying the bubble. Alan Greenspan said in testimony before the U.S. Congress Joint Economic Committee June 1999, "But bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong." At the time, we dug up a similarly evasive statement by Professor Lawrence of Princeton University in September 1929 when he said, "[T]he consensus of judgment of millions whose valuations function on that admirable market... is that stocks are not at present over-valued. Where is that group of men with the all-embracing wisdom which will entitle them to veto the judgment of this intelligent multitude?" Today, Greenspan is in the no-bubble camp again, this time defending historically anomalous housing price appreciation with statements that are reminiscent of his defenses of stock valuations during the stock market bubble. Who is the Fed to say that prices are too high? Markets know best.
Fact is, housing bubbles, like stock market bubbles, are not at all hard to spot. We grant that they are politically challenging to discuss in public, especially when they are needed to prevent the aftermath of a previous monetary disaster, the 1990s stock market bubble, from dragging the real economy into a deflationary depression. Putting aside New Economy obfuscation, the measure of a stock market bubble is simple: prices rise much faster than future earnings possibly can. A stock market bubble looks like this...
itulip.com for the rest if you are interested
Post 40849 by code_four Reply
lumm lives. 14mm finance deal!!
(Voluntary Disclosure: Position- Long; ST Rating- Buy; LT Rating- Buy)
Post 40850 by lkorrow Reply
Post 40851 by ljpit Reply
briguy, oil stock.. if I were living in the US then instead of opting for XOM I would consider buying an oil stock in Europe (my pick would be Shell at FTSE), as you'll benefit more from (a likely) devaluation of the dollar (next to the rise in the price of oil expressed in $) in the next few months.
OT: OCU, Glad you're having a
Post 40853 by pmcw Reply
Buying into oil at a discount:
PEO is an ETF and currently trades below NAV
Post 40854 by Arkural Reply
pmcw-Csco-1Stop, now that is an interesting pondering...ing...ing.
Post 40855 by spirare Reply
The US is starting to publicly admit that the Saudis are no friends of the west, never mind the US.
There will be more to this court case than people think.
Rich Saudis have been financing terrorism for decades, maybe not because they want to but these terrorist extort huge amounts of money from them and they leave a big paper trail.
They have pulled billions on concern the assets will be frozen (no friends need to be scared).
All amounts should be frozen immediately to the case be
solved in the Courts!!!
Prince Alwaleed Urges Saudi Investors to Stay in U.S.
By James Cordahi and Sean Evers
Cannes, France, Aug. 22 (Bloomberg) -- Saudi Prince Alwaleed bin Talal, the
world's 11th richest man, urged fellow Saudis to remain invested in U.S. markets
amid speculation they have pulled billions on concern the assets will be frozen.
The 45-year-old nephew of King Fahd, whose net worth Forbes magazine valued
at $20 billion, dismissed analyst estimates that Saudi investors have withdrawn
$200 billion from the U.S. market. The families of about 600 killed in the Sept. 11
attacks have filed a $1 trillion lawsuit last week against Saudi banks, charities
``These people may have filed a lawsuit, but they still have to win'' before the
courts can freeze assets, the prince said in a telephone interview. ``If you have
nothing to hide, then you should stay in'' the market, he said.
Concern that Saudis, who analysts estimate have $600 billion in the U.S., were
withdrawing money from U.S. markets kept the dollar from gaining alongside
stocks yesterday. The prince is the largest single shareholder in Citigroup Inc.,
with almost a 5 percent stake.
The prince has no intention of selling any of his U.S. assets, which also include
stakes in AOL Time Warner, the world's largest media and Internet company,
and Motorola Inc., the second- largest maker of mobile phones.
`Looking to Buy'
``If anything, I'm looking to buy if the opportunity arises,'' he said by phone from
Cannes, on the southern coast of France.
Last month the prince said he had no plans to buy more U.S. shares and is
concerned by recent swings in the stock market.
The prince said he has spent more than $1.5 billion on U.S. shares since Sept.
11, including $1 billion of Citigroup shares, $450 million on AOL and about $100
million on Priceline.com, the No. 3 Internet travel seller.
``The U.S. investment market is a very important market for any serious investor
worldwide,'' said Fahd Mubarak, a Riyadh- based economist who has advised the
Saudi government on attracting foreign investment.
Some small Saudi ``investors may retreat, but serious investors that have been in
that market for many years will make their judgment on solid economic
fundamentals,'' he said.
The U.S. lawsuit names several Saudi-owned banks, financial institutions and
principal shareholders as having helped finance or channel funds to Osama bin
Laden and his al-Qaeda group. The organizations include National Commercial
Bank, Saudi Arabia's top bank, and Al-Rajhi Banking & Investment Corp. the
In Saudi Arabia, the Al-Watan newspaper among others urged investors to keep
their funds in the kingdom, while clerics, schoolteachers and activists have called
on Saudis to boycott U.S. goods to protest the country's support for Israel.
U.S. exports to Saudi Arabia in the first half fell to the lowest level since 1990.
Foreign investment in the U.S. in the first five months of the year fell 19 percent
to $185 billion, according to the latest U.S. Treasury figures, contributing to this
year's 17 percent drop in the Standard & Poor's 500 index.
Current Price of Gold
TIA. Pass It Along>>>>>>>>>>>
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
Post 40857 by pmcw Reply
Gold / Euro Question
What has been the YTD change in the price of gold when purchased in Euros?
Post 40858 by Arkural Reply
Emc tgt achieved+, taking profit.
OT: Online polling is not yet
Post 40861 by srudek Reply
Proposal for New Currency backed by commodities (w/ARTICLE)
While I am disgusted with the utter lack of foundation behind the world's currencies and see them as putting us on a guaranteed track toward endless, unnecessary troubles and crises, I doubt that going back to a "gold standard" is going to happen. I also suspect that reintroducing a gold standard would create its own set of problems. Among other things, as previously pointed out, if "gold is money" then a handful of 2nd and 3rd world countries would, overnight, become the richest countries on earth. Bowing to South Africa, Guyana, and Canada. doesn't do it for me.
I see the current currency "experiment" -- in place since the early 70's (and, partially, since the early 1900's) -- as a near complete failure; I'm amazed it's held together as long and as well as it has. I fully expect to see it degenerate much more quickly from here. A complete collapse seems near inevitable at some point, imo, unless we act preemptively.
Our currency system -- as with stock options -- was selected by governments and financiers PRECISELY because it makes "theft" of value by insiders so easy and so easy to hide. The "good men" who backed and back the CONCEPT of stock options and fiat money can talk all they want about the THEORETICAL benefits of having "flexibility" in financial dealings. In the end, however, the "borrowed" money never quite gets repaid, now does it? That's what really matters.
In 30 years, U.S. currency has been DELIBERATELY inflated by OUR Fed so as to DELIBERATELY destroy 90% of its value; in anther 30 years, we should expect AT LEAST another 90% to be gone -- probably much more, given the indebtedness we must now service. Does this seem sustainable to anyone?
Fiat currency, stock options, and perpetual motion machines have much in common: near perfect props for a con. Most people are now wary about schemes to "invest" in a perpetual motion machine. So the cons, these days, have to focus more on stock options, fiat currencies, and other slick props.
Anyway, I'm sure the brains in this world can come up with something enormously better than fiat currency for CORRECTLY acting as a store of wealth and not a tool of deliberate inflation. Apparently some people are working on it, as per the following article.
Belgian currency ideas man puts faith in commodities
2002-08-20 03:40:58 GMT (Reuters)
By Jalil Hamid
KUALA LUMPUR, Aug 20 (Reuters) - Dr. Bernard Lietaer says he thinks he has found a better answer to the instability of the world's financial markets -- a new global currency fully backed by a basket of physical commodities such as crude oil or wheat.
Lietaer, who helped create the single European currency when working for the Belgian central bank, says his Terra currency is inflation-proof, more stable and can be created either by nation states or by an alliance of big corporations.
The 60-year-old author of the best-selling book "The Future of Money" said the Terra could be developed much faster than the 23 years it took to come up with the European Currency Unit (ECU) -- the precursor of the euro.
"It took us 23 years from the design of the ECU to the euro implementation," he told Reuters in an interview. "I think we are going to be faster on this (the Terra) because the time is less flexible. I think the pressures are higher."
Lietaer, who is now a fellow at the Center for Sustainable Resources at the University of California at Berkeley, is in Malaysia this week for a conference on the viability of Islamic gold dinar as trade payments system.
Once named "the world's top currency trader" by Business Week, Lietaer's speciality is monetary innovations which he elaborated upon in the book, already published in English, German and Japanese.
Lietaer said the current world monetary system has several systemic flaws, such as the lack of an international standard of value, and the pro-cyclical money creation by the banking system.
He said multinationals can deal with the problems by turning to the Terra, which as yet only exists within a computer model in a German economic research institute.
"We are not changing something, we are adding something. That's why I am most optimistic. It's easier to start something that can work parallel with the existing system.
"I don't have the illusion of trying to reform the existing system."
PREDICTS BRITAIN WILL ADOPT EURO
Lietaer, who predicted Britain would finally adopt the euro around 2005, said the Terra would exist alongside three regional currencies -- the euro, the U.S. dollar and the possible single ASEAN currency incorporating the Japanese yen or the Chinese yuan.
How does the Terra work?
Issuers of the Terra would back it with stocks of real commodities like copper, rubber or palm oil.
It will be conceptually similar to the fully backed gold standard, but in the case of the Terra the backing will consist not of one single commodity but a dozen, including gold.
"Because it is fully backed by a physical inventory of commodities, the Terra would be very robust and credible payment unit," Lietaer said.
One key feature, which sets it apart from previous commodity basket currency concepts, is that the cost of storage of the physical commodities would be applied to the bearer of the Terra. This works out to 3.5 percent per annum.
"In other words, you have a demurrage charge. Demurrage is exactly the opposite of interest rate. So it's time-related charge for keeping the goods."
One advantage of that is instead of hanging on to their money to build up interest, people would have a financial incentive to invest and keep investing.
Lietaer said the Terra concept would also be a better solution than Malaysia's idea of using gold reserves to settle bilateral trade balances with other Islamic nations.
Malaysia has proposed the adoption of an electronic currency -- the Islamic dinar -- as a common denominator for its fellow Muslim nations to value their trade.
Lietaer said the flaw in the idea was the potential for sharp swings in the international bullion price that Malaysia and its partners would be powerless to contain.
"So if you have the price of gold going from $300 to $800 an ounce, what will you do?
"You can certainly start this. Will it be acceptable on a large scale? I'm less convinced."
Malaysia hopes to start the Islamic gold dinar system in 2003 with a few other countries.
Post 40862 by srudek Reply
pmcw: gold is denominated in U.S. dollars by international convention. This may date back to Bretton Woods (sp?), I don't know. In any case, all you need do is look at the gold price adjusted for $ vs. euro change for that same period. At least I believe it is this simple. Anyway, this is one of the strong arguments for gold going up -- the dollar going down is almost a sure thing.
Post 40863 by pmcw Reply
sr, Thanks, I didn't know that, but like I've said, I don't know much about gold. Do you know of a source where I can get historic currency exchange rates for the US$, Euro and Yen? Regards, pmcw
Post 40864 by SkippyWalker Reply
PALM and HAND
Both shooting upwards today.
What is going on? Does anyone see anything besides irrational exuberance? I don't.
OT: danking, "polling, on
Post 40866 by srudek Reply
jcl: re housing bubble article. Thanks for the article. However, I disagree for a number of reasons:
(1) There is no agreed definition of a "bubble" (shocking, huh? pmcw points out there also is no definition of "depression") so anyone can say any silly thing they want regarding bubbles -- they are just babbling.
(2) There is still economic sense in buying houses to rent for positive cash flow, in many sub markets. I'm days away from closing on a small multifamily which will return 20% or more, cash on cash, in a California sub market.
(3) MY definition of a Bubble (as good as any other definition...or lack thereof;-) says that a Bubble is always accompanied by -- in fact predicated upon -- social delusion/mania. I don't see a LOT of delusion/mania, except in SOME markets (e.g., San Diego, L.A., Bay Area, Boston).
(4) Going along with #3, when there is a REAL Bubble the main stream press and analysts ARE NOT willing to even discuss whether there is a "bubble" -- they certainly do not make statements or print articles that there IS a bubble. In a real bubble, almost nobody questions anything. Think about how it was in 1999 regarding stocks.
So, my opinion is that we have a CREDIT Bubble (notice how little press coverage on THAT), a derivatives Bubble, and we are STILL in a stock market Bubble (notice almost all the talking heads -- who couldn't see the Bubble when they were in it -- are now talking about how we WERE in a stock bubble...but NOW they see "good values"). But most of the U.S. is not yet in a full real estate Bubble. Real estate IS getting expensive -- but so is EVERY source of investment which (relatively) safely generates a cash flow (e.g., bonds).
That said, I'd still suggest you be wary of single family houses as they have a much higher probability, imo, of falling precipitously from here than is warranted by the upside potential -- at least in the intermediate term. Don't forget these buggers are LEVERAGED and many, many people wouldn't have enough money to make two months payments if they lost their job. A LOT of white collar jobs are likely to be on the butcher block in the next recession -- so people with $4,000+ mortgages (most of the bay area, for example) may not be able to keep up their payments if they have to replace their $150K engineering job with a job as a pizza delivery person, for example.
Post 40867 by wilful10 Reply
Why would "OUR Fed" do what you claim?
[ In 30 years, U.S. currency has been DELIBERATELY inflated by OUR Fed so as to DELIBERATELY destroy 90% of its value; in anther 30 years, we should expect AT LEAST another 90% to be gone -- probably much more, given the indebtedness we must now service. Does this seem sustainable to anyone? ]
Your emphasis on "DELIBERATELY" is noted.
Post 40868 by srudek Reply
pmcw: I appreciated your thoughtful response re those bubble graphs. I'm hoping that you and I and anyone else who is interested might yet reach some sort of semi-consensus on what should be considered a "bubble" and what should not. Even if our definition is not agreed to by the world, I think that would be a great learning to carry forward from here as it would help US the next time we are confronted by something which everyone is insisting is just a "new era" and we want lack an objective standard.
I hope to get back to really reponding more in depth to your original questions regarding my bubble graph post as they were all good questions and need to be addressed if I hope to tighten up my definition of "Bubble". I will be thinking; also, my hands are a mess and it is often very painful to type, so my silence is sometimes driven by that.
I DO feel that future value of dividends need to be factored in when making comparisons or judgments regarding reasonableness of valuations and, I'm sure, that was not included in any of those graphs.
I previously posted a link to really thoughtful, imo, analysis by Ryoji Musha, Chief Strategist,Deutsche Securities Limited. Nobody commented on it, though -- maybe nobody downloaded the pdf or maybe it was too long for most people (32 pages). If you haven't read it, I've got the link to the link below. I'd really appreciate it if you took a look at it and gave me your opinion on its value. Also, I believe THIS is where I saw the inflation adjusted comparison graphs of several market tops (including the 1968 top).
Post 40869 by pmcw Reply
sr, A few questions:
Can you explain how the FED has inflated our currency and who has benefited (please be as specific as you can both in name and in sector).
If you don't feel the current currency system is of value, why don't you buy and store commodities? You and everyone else on the planet can do exactly that rather than hold cash. I do respect the point that you do quite a bit to follow your beliefs through your extensive real estate holdings, but you do realize there are additional steps you could take.
To me, it is obvious as to why many Moslem nations and many countries I loving call "third world theme parks" want to move to a asset backed currency. IMO, a significant number of these countries are inherently corrupt and/or managed with gross inefficiently. As a result, their currency doesn't hold value and they probably don't trust each other. If they can't figure out how to write a simple contract and tie the payment to anything from gold to banana leaves, they are in more trouble than I ever dreamed.
Writing international contracts with a clause basing payment on a commodity price is nothing new, it's been going on for at least decades. Heck, I used to write domestic contracts with commodity clauses and international exchange rate clauses. Basically, all the things this guy suggests can be and are done today.
I personally see the value of a currency tied to a few basic things. First and foremost is the ability of the country to produce goods and services. Second is the country's nature to tend to it's own bank (keep the money supply within a reasonable tolerance of their GDP and productivity growth). Third is probably a subject measure of the country's integrity (corruption siphoning off the top).
Sorry, but I see the majority of the industrialized world (as measured by GDP) getting along just fine with a flat currency. Of course, if the change in my pocket was denominated in anything other than US$, Euros or yen, I would probably feel differently. Heck, with the inflation prone countries that are a part of the Euro and the economic problems that have plagued Japan, I probably wouldn't feel too great about those currencies either, but not so bad that I couldn't sleep nights or would wake up yearning for a new world currency.
Post 40870 by maniati Reply
pmcw: Exchange rates, POG in Euros....
On Jan. 2, the POG was about 311.75 EUR. Today, the POG is about 316.5 EUR. That's a 1.5% increase.
On Jan. 2, the exchange rate was about 1.12 EUR/$.
Here's a source of historical exchange rates:
Post 40871 by tinljhtkh Reply
08/22/2002--Tiptoe through the tulips—the August flower power rally?
Table got into a discussion about tulips today! For the uninitiated, one of the great bubbles of all history occurred in Holland many years ago, when tulip bulbs really took a speculative trip! Here is how Table approached the subject!
Sometimes the market just goes its own way and does its own thing, so to speak! Jaguar has been running some commercials tied to the latest Austin Powers movie. The title of the commercials is London Calling! They show the jaguar traveling back in time to a period when spies abounded, at least on television! London called early on to report that they too had weak retail sales in August, and that the American firm Staples might have bought a French office supply firm!
There was continuing speculation as to whether the housing market had “lost its mojo” but an interview early in the day with a representative from the Mortgage Bankers Association assured us that this was not the case—at least not on a nationwide basis. The bankers are looking for continued strength through the end of this decade, citing the fact that so many of the younger age group has not even moved into property ownership that any bubble will be swallowed up by their desire to become homeowners of some type or another. One still has to wonder whether it’s the markets that want that housing bubble to pop, freeing up funds for another great bull market that they so long for. For some reason or other, I conjure up visions of a “bull in a china shop” when it comes to the housing market. That’s because it is home refinancing, now at historic highs, that is powering the consumer. It is that consumer that the market mavens look to when they justify consumer spending as one of the reasons for a continued market expansion! Beyond that point, to return to the 1960’s era of Austin Powers once again, lets rally because “if it feels good, do it!” Or as Austin would say “Yah baby! He would say that just before he got that look in his eye and said: “Do be good!”
The 1960’s were famous for spying, and a company who sells whole life insurance moved from the AMEX over to the NYSE, its symbol is CIA! I kid you not!
Jobless claims were a non-event in either the equity or the bond markets as they revised one month up by 2000 and the next down by 2000. Table got into a discussion of modern math but the government was way ahead of them as it apparently has been for quite some time!
There was a report that air traffic was down out in Las Vegas, keeping the high rollers and their cash flow out of town, but beer shipments for July were up by 2.6 percent! When the old boy who calls everybody saying “Vegas calling,” gets anybody to answer the phone, he’s probably getting a slurred reply—or worse! I hope that the nice couple who drives into Vegas at his request isn’t picked up for drunken driving before they get there! Vegas may be calling, but nobody is answering the phone!
If they’re not answering the phone for Vegas, maybe they’ll respond to Southwest Airlines reductions of 100 dollars per ticket in their attempt to build business travel, a staple of the airlines industry! It was Mel Gibson, so many years ago, that popularized the term “Road Warrior”, but it looks like that Mad Max might be staying home this year. Max realized that life on the road was very dangerous, but he had never encountered a post September 11th airport wait. I’m not so sure how he would have taken the idea of having his underwear checked out. He might have just looked at them with a cold stare and said: “They’re Haines and let’s leave it at that!” Would they be willing to cross the river (Michael) Jordan in order to try and deal with him?
Even the definition of a power lunch is up for grabs these days. When asked what his idea of a power lunch was, an Australian golfer interviewed in CNBC today simply said that he would get together with his mates and have a couple of Fosters and then get into some sort of “red” and, three hours later, still be powering on! He didn’t look like a wine drinker to me!
On of the large pork processors stated that hog prices would remain depressed through the rest of the year, so it appears that there will be more money for beer! Could it be that they’ve nested to the point that they’ve even quit going outside to barbecue? I know it’s been a hot summer, butt….!
There was one thing about that London Calling offer that Jaguar has been running since Austin Powers showed up again in his “Shaguar:” it ends on August 31st! It reminds me of the IBM commercial where the lady who is attending a Friday afternoon management meeting and gets out of it when she gets a call that “the networks down, I have to go!” When she gets outside into her boy friends car and he asks how long this excuse will work, she replies “I hope until Labor Day!” This group of traders and investors is supposed to be the third stringers—the rest will be back after Labor Day!
It s been a hot summer and I hope that the tulips don’t wilt!
Table had more opinions on the Saudi controversy!
There was one very haunting article on the whole “continental” situation in regards to Iraq that I think should be required reading!
Todays market rally was driven, in part, by an analyst’s upgrade of Microsoft! Here is a take on that!
Our founder had an opinion on this “tulip rally!”
But then, our own road warrior dropped by!
And then there were those who simply wanted to try something new!
Technically speaking, it was, in many ways, a very good day! The Dow maintained good volume while the NASDAQ really picked up! On the NASDAQ, new highs and new lows almost evened out, while the NYSE saw some declines in the total number of new highs, as well as new lows! Advancers and decliners looked good on both indexes, but the ticks up and downs narrowed on the NYSE while they did not improve at all on the NASDAQ!
The next heavy resistance area for the Dow looks to be around 9250, while the NASDAQ could run as far as 1500, but look out for 1450. Tomorrow is Friday and any negative news will send this market packing for the weekend. The Vix fell to just above 30, showing that fear in this marketplace is beginning to go away! Less fear less volatility! I have noticed that those who might have sold some of their losers early in this rally as they traded up might be taking another very selective look at some of them again as they value shop, or bottom fish, depending on your view!
It still looks pretty murky down there!
OT: I have sat at the Long Bar
Post 40873 by pmcw Reply
sr, Thanks for the kind and encouraging words. Working through this stuff with you is a pleasure. I suspect we come from different backgrounds and we certainly have different perspectives on many issues. However, I feel we both share a hunger to learn. I've certainly been rewarded through our exchange.
I did breeze through the article and felt there were points of merit, but all in all, it's biggest impact was that it made me pine for Yardini. I don't think the author could hold his ------. I put it down several times in disgust, but picked it back up simply due to my respect for you. I don't buy into Musha's conclusions and I spotted one area (figure 5) where his data doesn't even come close to resembling the truth. Government spending as a percentage of GDP dropped every year from 1991 through and including 1998. It crept up only 0.1% in 1999 and held that mark in 2000. In other words, his figure five is a gross distortion of reality. I also wonder if he reads the weekly releases of the M's (M1, M2 and M3). If he did, he would clearly see the saving rate and gross dollars saved are going up. This bodes well for supporting naturally (non-Fed induced) low interest rates.
In addition to what I see as a distorted American perspective, I think he's out to lunch in Asia. IMO, Korea will clearly lead the Asian economy.
Generally, I see his perspective as terribly mired in the six month European lag in this recession. I feel he is also working in the shadow of our international problems and has no respect for Yankee ingenuity. Historically, the yanks have found ways to fix problems others saw as hopeless.
I will continue to try and muddle through Musha, but can't make any promises. Please don't take it from my rant that I feel his piece has no value, but only that I see some gaping holes. This is not something I expect from a professional in his position. Of course, again, I was spoiled by Dr. Ed.
PS: The link to Musa follows - just so we can keep it in a more current post.
Post 40874 by pmcw Reply
maniati, Thank you - web site logged. It appears to me that the price of gold has been pretty stable this year and that the dollar has simply lost ground as was widely forecasted. Only 1.5% up after all the scare and hording - that's amazing and probably correlates to the Eu inflation rate. In other words, holding gold rather than Euros has simply protected one from inflation.
If you are looking for a nice commodity hege that actually produces profits (doesn't just sit there) take a look at WIRE. They have substantial copper inventory and are a leading producer of all sorts of copper wire.
They're down about 20% on the year, have a P:E of 15.8 and a P:S well under 1:1.
Post 40875 by Briguy Reply
Re: Saudi's pulling money out of US...
Found this today. I said $800 Billion- getting the figure from a couple analysts. This guy says $750 Billion. Yet others say only $150 billion, or even less. Who to believe? Who the hell knows!
Here's a clip...
The strategy of “divide and conquer” is famous. Today we find the Islamic terrorists and Saddam Hussein (along with their hidden allies) attempting to use a “divide and conquer” strategy against the American global economic system. It is an attempt, by way of religious demagogy and outrageous violence, to divide Arab interests and American interests -- to divide America from oil exporting countries and critical Arab allies. This in turn promises to exacerbate America’s military and economic difficulties. In addition, weak Arab states accustomed to American support might forfeit U.S. assistance to appease domestic anti-Americanism. This could lead to revolutions in the Arab world and serious economic disruptions in the West.
When Arab terrorists attack U.S. targets the psychological result is an increase in tension between the United States and its Arab allies. Pundits and policy-makers recognized this danger last year. Consequently, the world was treated to pro-Islamic and pro-Arab statements by no less a person than President George W. Bush who described Islam as “a religion of peace.” The United States did not want the strategy of “divide and conquer” to work. Previously uninterested in brokering a peace between Israel and the Palestinians, the administration realized that a decrease in regional tensions was not merely desirable but essential.
But U.S. diplomatic efforts have failed. A monkey wrench was thrown into the mix. A redoubled terrorist offensive against Israel quickly made the U.S. position appear false to both sides in the Middle East. While America was chasing down terrorists in Afghanistan, Israel was chastised for doing the same thing on the West Bank. At the same time, the United States could not give satisfaction to its Arab allies by pressing Israel too hard for concessions that would restart the peace process. The situation is now as follows: A crack that always existed in U.S. Middle East policy has become a crevice. As the crevice widens, the United States will not be able to keep a foot in each camp. In the last analysis the United States will be forced to choose sides.
Today, more than eleven months after Sept. 11, the effectiveness of the terrorist’s “divide and conquer” strategy is apparent. Late last week a Qatar News Agency (QNA) headline stated, “Egypt will not let US warships pass through Suez Canal.” This is significant because it coincides with an apparent change in U.S. policy regarding foreign aid to Egypt. Reports indicate that Egypt may lose economic goodies for failing to support U.S. efforts against Saddam Hussein.
But the economic road between Arabs and Americans is a two-way street. Saudi Arabia’s wealthiest investors have threatened to pull billions of dollars out of America. Accused of collaborating with terrorists, legally hounded by Sept. 11 survivors, Saudi businessmen will eventually look toward China. It is no longer safe for them to keep their money in America. The wealthy oligarchs of Arabia are now calling on the Saudi monarchy to rethink its political alliance with the United States. Reports from overseas indicate that the Saudis have been stunned by a massive lawsuit filed in Washington.
The flight of Saudi money from the United States promises to come at a bad time. Foreign investment in America has already fallen by more than half since December 2000. In the wake of business scandals and other financial difficulties the economic picture is not altogether rosy. Serious economic damage may be inevitable. The Saudis have invested approximately $750 billion in the United States.
The United States needs Saudi money, it needs Saudi oil and it also needs Saudi military bases to facilitate an invasion of Iraq. Earlier this month the Saudi government told the Bush administration that the U.S. military could not use bases in Saudi Arabia to attack Iraq. Like Egypt, the Saudis oppose a regime change in Baghdad. The reasons are psychological, ethnic and strategic. The Saudis and Egyptians apparently believe that any attempt to bring down Saddam Hussein will result in the unleashing of mass destruction weapons. Millions of Arabs could die from the effects of U.S. or Israeli nuclear bombs.
The problem with mass destruction warfare is the way it redraws all lines of contention. Once nuclear weapons are used, even in retaliation, the target population is psychologically unified in terror and in a desire for revenge. Since the Arab countries are one people living under various regimes, the psychological reality is that a mass destruction attack on one will have the effect of an attack on all.
The real mystery in all this is why top U.S. officials, like National Security Advisor Condoleezza Rice, continue to talk about eliminating Saddam Hussein. Everyone in the region believes that Saddam Hussein will use biological, chemical and nuclear weapons if his survival is threatened. His nastiest move would be to attack Israel. Israeli officials have already passed out potassium iodine pills to be used in the wake of nuclear war. The Israeli government’s official position on an Iraqi mass destruction strike is quite clear. They would swiftly retaliate on Iraq with nuclear missiles. The result would put America behind Israel and against the whole Arab world.
Last month the American press reported on leaked U.S. planning documents that discussed the preemptive use of nuclear weapons against Iraq. The Washington Post published a story about a July Pentagon briefing that referred to Saudi Arabia as an enemy of the United States. Post writer Thomas E. Ricks’ story, “Briefing Depicted Saudis as Enemies: Ultimatum Urged to Pentagon Board,” revealed the details of a 24-slide presentation given to the Defense Policy Board by Laurent Murawiec of the Rand Corporation, on July 10. The briefing was allegedly titled, “Taking Saudi out of Arabia.” Murawiec argued that, historically speaking, “wars have been the principal output of the Arab world.” The Arab world is afraid of change. A cult of violence has grown up in reaction to the West. Murawiec told the Pentagon, “Once upon a time there was a partnership between the U.S. and Saudi Arabia….” But we don’t believe in fairy tales any more.
Analyst Murawiec then suggested that we should give the Saudis an ultimatum. They must stop funding fundamentalist schools and mosques around the world. They must put an end to anti-Israeli and anti-Western propaganda in their midst. They must confiscate the assets of radical Islamists. They must crack down on fundamentalist sympathizers.
Such a presentation, no doubt facilitated by higher-level officials who share Murawiec’s views, indicates the psychological effect of Sept. 11 on U.S. strategic thinking and on U.S.-Arab relations. Despite the fact that we know what the terrorists have been aiming at from the beginning, the logic of our situation leads us step by step to a break with our Arab friends. America’s leaders are afraid of atomic bombs being smuggled into this country by Arabs. Under the current regime of liberty and free trade, with open borders and lax security, the government cannot effectively protect U.S. cities from madmen like Osama bin Laden and Saddam Hussein. Therefore, fear is driving the U.S. to go after the madmen in an aggressive way. Fear then drives the madmen to contemplate extreme measures on their own side.
The result is what we are now witnessing. War in the Middle East appears likely. The defection of our Arab friends also seems likely. An energy crunch would follow logically, and an economic mega-crisis as well. It almost seems that the world is sinking into madness. But no, it is a matter of strategy -- the strategy of “divide and conquer.”
Post 40876 by motordavid Reply
Briguy: Interesting Art.;
how 'bout a link or ref...not that either makes it more valid, but in view of the pretty solid statements, the source would be appreciated. Besides that, it will probably get much uglier before it gets...
Guns'N Butter in the '40s, and zealots and oil in the '00s. BR,md
OT: danking - Seldom have I re
Post 40878 by clo Reply
I.M.F. Cuts Outlook for Most Major Economies
August 22, 2002
Filed at 12:08 p.m. ET
FRANKFURT (Reuters) - The International Monetary Fund in its World Economic Outlook cut its growth forecasts for most major global economies, a newspaper reported on Thursday.
Germany's Handelsblatt said the Fund cut its growth outlook for the U.S. economy for this year by 0.1 percentage point to 2.2 percent and by 0.8 percentage point to 2.6 percent for 2003.
Handelsblatt said the figures were based on a copy of the IMF's World Economic Outlook which is due to be released late in September.
The IMF kept its outlook for the global economy unchanged at 2.8 percent growth this year, but lowered the outlook for 2003 by 0.3 percentage point to 3.7 percent.
It also lowered the outlook for the euro zone economy for this year to 1.1 percent and 2.5 percent for next year, but raised the outlook for Japan this year by 0.5 percentage point to a 0.5 percent contraction.
Post 40879 by tinljhtkh Reply
I hate to say this, however
since September 11th, 2001 the one thing that has done more to contribute to the divide and conquer strategy has been the person who put it into these such very simple words: "You're either for us or you're against us!" That one statement took out all of the middle ground! It used to be such a complex and, thereby, workable situation! Now, it’s such a simple and unworkable situation! Perhaps we can excuse the inexperience of the person who said it, but adding "wanted: dead or alive" certainly didn't help!
I think back to Gettysburg in July of 1863. The South came into Pennsylvania ready to end the war and force Lincoln to sue for peace. At a place called Little Round Top, toward the southern end of the battlefield, southern troops repeatedly assaulted union troops who, at the end and with no more ammunition, charged down the hill and captured their opponents, ending any chance for the South to win the Civil War! It was, I believe, the next day that Pickett made his famous charge across that open space. 15000 troops marched across that field and most of them never came back!
That is what happens when you get into "for us or against us" situations.
Shortly after Gettysburg, a man named Sam Grant was called from his victory at Vicksburg and asked to command the Union armies in the East. He and another man named Sherman waged total war on the South and destroyed a way of life. Perhaps it needed destroying but most of the soldiers who fought for the Confederacy never owned a slave in their lives--they fought for their home soil! Most of the Union soldiers didn't inlist to fight slavery, they fought for their flag and because their president had asked for them to defend it and every star on its field!
I suppose that the moral of this fairly well-known story is simply that, until Gettysburg, when the South left its defensive positions and invaded ground not sacred to itself, neither side was really winning! This nation has always, throughout history, held the moral high ground simply because it has chosen, even at Pearl Harbor, to wait for the other side to make the first move. The only war we didn't win was Vietnam, and the only way we would have ever won it would be to have killed every Vietnamese who opposed us, or at least it appeared that way!
I have no idea what lies ahead but we should be careful when we invade foreign ground without the moral provocation to do so. If we have the intelligence to know what Iraq is doing that so provokes us, we surely have the capability, like Israel in the early 1980's when it bombed Iraq's nuclear reactor site, to eliminate the immediate threats to our national interest and security! Maybe I'm wrong about that assumption but the risks outlined in Briguy's post seem rather large to me. If Saddam has weapons of mass destruction, I think that the evidence should be displayed in an open forum such as the United Nations, as Kennedy did in 1962, for the entire world to judge and see for themselves, before we start overthrowing governments! If the excuse for not displaying such evidence is the compromising of the sources where we got it, then I think that we need to find better sources that might be more reliable!
There is, after all, a great deal at stake here. If we remember Cuba, in 1962, we also must recall that once we got rid of the nuclear weapons threat, Castro became nothing more than a thorn in our side that we've lived with for 40 years! Saddam's been over there since the Persian Gulf War since 1991 and nobody's been attacked since, and that's been 11 years! If we have to do this thing, I suppose we have to do it, but there are differing ways to handle a conflict. I'm as patriotic as the next person is, but I also know the lessons of history. We're making a whole lot of assumptions here that need to be backed up with fact to make them legal--and moral--before we go ahead. Might does make right, but the greatest might of all is doing what is right, and in the right and proper way! Otherwise, it simply becomes a lynching party! And that gets to become a habit very, very quickly!
OT: A chart you may want to s
Post 40881 by lkorrow Reply
Tin, Tin, you're welcome. :-) You're right. I think Met's doing a lot of good things. They have some challenges too, it's a road we all travel. One thing I'll say, Chairman & CEO Benmoshe is sharp as a tack. And I worked with Dan Cavanagh when he was CIO, he's a good man, an honorable person. Movin' on up. . . .
Post 40882 by ttalknet2 Reply
Money Inflation And Price Inflation
Excerpted from: http://www.mises.org/econsense/ch77.asp
Making Economic Sense by Murray N. Rothbard
(Auburn, AL: Mises Institute, 1995)
emphasis added by me
...There are very good reasons why monetary inflation cannot bring endless prosperity. In the first place, even if there were no price inflation, monetary inflation is a bad proposition. For monetary inflation is counterfeiting, plain and simple. As in counterfeiting, the creation of new money simply diverts resources from producers, who have gotten their money honestly, to the early recipients of the new money to the counterfeiters, and to those on whom they spend their money.
Counterfeiting is a method of taxation and redistribution from producers to counterfeiters and to those early in the chain when counterfeiters spend their money and the money gets respent. Even if prices do not increase, this does not alleviate the coercive shift in income and wealth that takes place. As a matter of fact, some economists have interpreted price inflation as a desperate method by which the public, suffering from monetary inflation, tries to recoup its command of economic resources by raising prices at least as fast, if not faster, than the government prints new money.
Second, if new money is created via bank loans to business, as much of it is, the money inevitably distorts the pattern of productive investments. The fundamental insight of the "Austrian," or Misesian, theory of the business cycle is that monetary inflation via loans to business causes over-investment in capital goods, especially in such areas as construction, long-term investments, machine tools, and industrial commodities. On the other hand, there is a relative underinvestment in consumer goods industries. And since stock prices and real-estate prices are titles to capital goods, there tends as well to be an excessive boom in the stock and real-estate markets. It is not necessary for consumer prices to go up, and therefore to register as price inflation. And this is precisely what happened in the 1920s, fooling economists and financiers unfamiliar with Austrian analysis, and lulling them into the belief that no great crash or recession would be possible. The rest is history. So, the fact that prices have remained stable recently does not mean that we will not reap the whirlwind of recession and crash.
Note: This was supposedly written in 1995. But much of it reads as if it was written post-crash as late as 1988. Continuing on...
But why didn't prices rise in the 1920s? Because the enormous increase in productivity and the supply of goods offset the increase of money. This offset did not, however, prevent a crash from developing, even though it did avert price inflation. Our good fortune, unfortunately, is not due to increased productivity. Productivity growth has been minimal since the 1970s, and real income and the standard of living have barely increased since that time.
The offsets to price inflation in the 1980s have been very different. At first, during the Reagan administration, a severe depression developed in 1981 and continued into 1983, of course dragging down the price inflation rate. Recovery was slow at first, and in the later years, three special factors held down price inflation. An enormous balance of trade deficit of $150 billion was eagerly enhanced by foreign investors in American dollars, which [p. 276] kept the dollar unprecedentedly high, and therefore import prices low, despite the huge deficit.
Second, and unusually, a flood of cash dollars stayed overseas, in hyperinflating countries of Asia and Latin America, to serve as underground money in place of the increasingly worthless domestic currency. And third, the well-known collapse of the OPEC cartel at last brought down oil and petroleum product prices to free-market levels. But all of these offsets were obviously one-shot, and rapidly came to an end. In fact, the dollar declined in value, compared to foreign currencies, by about 30 percent in the year following the "recovery."
We are left with the fourth offset to price inflation, the increased willingness by the public to hold money rather than spend it, as the public has become convinced that the Reagan administration has discovered the secrets to an economic miracle in which prices will never rise again. But the public has not been deeply convinced of this, because real interest rates (interest rates in money minus the inflation rate) are at the highest level in our history. And interest rates are strongly affected by people's expectations of future price inflation; the higher the expectation, the higher the interest rate.
We may therefore expect a resumption of price inflation before long, and, as the public begins to wake up to the humbug nature of the "economic miracle," we may expect that inflation to accelerate.
Excerpted from: http://www.mises.org/econsense/ch77.asp
Much of what Rothbard described has taken place recently, except for price inflation and increased interest rates. His words predict their inevitibility. We shall see. I reckon there are pockets of price inflation right now, but maybe I'm missing a broad rise in prices because they melt up slowly and stealthily???
It looks to me like Greenspan expects rate cuts and monetary inflation will head off price inflation. His ideal 'managed economy' seems to accept the swings and cycles while alternately throwing hot and cold water at cold and hot conditions. fwiw, I've concluded that cycles and the hot/cold dousings by Greenspan are so heavily codependent as to appear indistinguishable from one another. There's no obvious 10-step program to wean the FED out of the mess, and all we get from the Bush administration are sweet affirmations that all is well with the economy. Uh huh.
Until recently I never thought I'd enjoy reading about economics. To my surprise Mises and Rothbard are usually pretty easy to understand. One of my favorites from Rothbard is What Has Government Done to Our Money: In six languages and in print since it first appeared in 1963. Very educational, imo.
More of everything: http://www.mises.org/scholar.asp#Murray N.
As always, your mileage may vary (YMMV).
Post 40883 by Arkural Reply
SkippyWalker-Ans: When money widens out to enter crappy stks, I'd take it as an indicator::::::the reversal/consolidation? is w/in picking distance. e.g. Cmgi.